BNUMBER:  B-274853; B-274853.2
DATE:  January 8, 1997
TITLE:  Comint Systems Corporation

**********************************************************************

Matter of:Comint Systems Corporation

File:     B-274853; B-274853.2

Date:January 8, 1997

Philip F. Hudock, Esq., for the protester.
Andrew N. Cook, Esq., and Joel S. Rubinstein, Esq., Bell, Boyd & 
Lloyd, for Digital Support Corporation, an intervenor.
Kenneth A. Lechter, Esq., Department of Commerce, for the agency.
Denise A. Benjamin, Esq., and David R. Kohler, Esq., for the Small 
Business Administration.
Tania L. Calhoun, Esq., and Christine S. Melody, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Protest is sustained where contracting agency's letter offering 
requirement to  Small Business Administration (SBA) for acceptance 
into 8(a) program failed to comply with the regulatory requirement to 
provide SBA with complete and accurate information regarding the 
proposed offering, to the protester's prejudice.

2.  Protest is sustained where contracting agency's letter offering 
requirement to Small Business Administration for acceptance into 8(a) 
program supported its request for a sole source award to a firm other 
than protester by estimating the anticipated award price to be below 
the threshold above which a competitive acquisition must generally be 
conducted; this estimated award price was unreasonably calculated; and 
a reasonable calculation yields an estimated award price in excess of 
the competitive acquisition threshold.    

DECISION

Comint Systems Corporation (Comint) protests the decision of the 
Department of Commerce, Patent and Trademark Office (PTO), and the 
Small Business Administration (SBA) to place the work encompassed by 
its microcomputer hardware maintenance services contract with PTO 
under SBA's section 8(a) program for award of a sole source contract 
to Digital Support Corporation.  Comint argues that PTO violated the 
applicable regulations in offering these requirements to SBA.

We sustain the protests.

PTO has a long-term strategy to consolidate existing contracts and 
establish fewer sources of supply for microcomputer-based office 
automation and support services.  Consistent with that strategy, the 
agency's February 1996 requirements initiative set forth a plan to 
establish a consolidated interim contract for hardware and software 
maintenance and a consolidated interim contract for office automation 
support services.  These interim contracts would be followed by a 
consolidated multi-year contract for all such services.  The interim 
contract for hardware and software maintenance is at issue here.  

At the time the requirements initiative was finalized, Digital was 
performing its third and final year of a section 8(a) contract with 
PTO for the provision of microcomputer maintenance services, as well 
as related software maintenance services.  The 1993 contract stated 
that there were approximately 4,700 combined units of microcomputer 
hardware installed throughout PTO, but estimated that more than 7,650 
units might be installed by the end of the contract's term.  PTO 
states that Digital was maintaining approximately 10,000 units of 
equipment in its final contract year, at a price of approximately $1.7 
million.   

At this same time, Comint, a section 8(a) firm, was providing PTO with 
hardware maintenance services under the first year of a non-section 
8(a) contract.[1]  PTO states that Comint's contract required the firm 
to maintain 70 units of hardware at a price of approximately $64,000.     

Each contract was administered by a separate office within PTO.  
Pursuant to the requirements initiative, the contracting officers' 
technical representatives for each contract discussed the possible 
consolidation of their requirements.  To arrive at the requirement 
which was eventually offered to SBA, the contracting officer for 
Digital's contract--who also served as the contracting officer for 
this interim contract--added the requirements encompassed by Comint's 
contract to those encompassed by Digital's contract.  The consolidated 
contract also included maintenance requirements necessitated by PTO's 
acquisition of additional equipment, as well as requirements that had 
been previously performed by agency employees.

By letter dated April 2, the contracting officer offered the 
consolidated requirement to the Small Business Administration (SBA) 
under the section 8(a) program.  The letter described the requirement 
as being for hardware and software maintenance services, with a term 
of 1 year, and stated that it was a "follow-on" to Digital's prior 
contract.  The letter valued the acquisition at $2.9 million and 
recommended Digital, as the incumbent, for a noncompetitive sole 
source acquisition.[2]  The letter advised that no other 8(a) concerns 
were afforded an opportunity to review the requirement "since this 
[was] a follow-on."  Neither Comint nor its portion of the requirement 
was mentioned.  By letter dated April 24, SBA accepted the 
requirement, stating that a determination had been made that 
acceptance of the procurement would cause no adverse impact on another 
small business concern.  

SBA signed the interim contract on September 11.  The contract was 
scheduled to run for one 3-month base period, with up to three 3-month 
option periods, at a total price of $2,932,480.  After Comint was told 
that the option under its contract would not be exercised, it filed 
this protest, arguing that PTO violated the regulations governing 
section 8(a) acquisitions by failing to provide SBA with complete and 
accurate information to make an informed decision regarding this 
section 8(a) acquisition.  In a supplemental protest, Comint 
challenges the agency's $2.9 million estimated award price as 
unreasonable.

Section 8(a) of the Small Business Act authorizes SBA to contract with 
government agencies and to arrange for performance of such contracts 
by awarding subcontracts to socially and economically disadvantaged 
small businesses.  15 U.S.C.  sec.  637(a) (1994).  The Act affords SBA and 
contracting agencies broad discretion in selecting procurements for 
the 8(a) program; we will not consider a protest challenging a 
decision to procure under the 8(a) program absent a showing of 
possible fraud or bad faith on the part of government officials or 
that specific laws or regulations have been violated.  Grace Indus., 
Inc., B-274378, Nov. 8, 1996, 96-2 CPD  para. 178 ; Korean Maintenance Co., 
B-243957, Sept. 16, 1991, 91-2 CPD  para.  246.  Here, the issue raised in 
Comint's initial protest is whether PTO complied with the requirement 
in 13 C.F.R.  sec.  124.308(c) to furnish SBA with complete and accurate 
information regarding the proposed offering, and, consequently, 
whether SBA had complete and accurate information upon which to base 
its decisions regarding this section 8(a) acquisition.

In making decisions regarding 8(a) acquisitions, SBA is entitled to 
rely on the contracting officer's representations regarding the 
offered requirement; in this regard, SBA regulations place the primary 
responsibility on the procuring agency to submit all relevant 
information necessary to SBA's decision-making process.  See 13 C.F.R.  sec.  
124.308; Korean Maintenance Co., supra.  Here, SBA reports, and we 
concur, that PTO's offering letter did not provide complete and 
accurate information as required under 13 C.F.R.  sec.  124.308(c). 

That section unambiguously mandates that an 8(a) offering letter 
include, among other things, the acquisition history, if any, of the 
offered requirement; the names and addresses of any small business 
contractors which have performed on the offered requirement during the 
previous 24 months; the identification of any particular 8(a) concern 
designated for consideration, including a brief justification, such as 
"[t]he acquisition is a follow-on or renewal contract and the 
nominated concern is the incumbent"; and the identification of all 
8(a) concerns which have expressed an interest in being considered for 
the acquisition.  13 C.F.R.  sec.  124.308(c)(9), (10), (12)(ii), (14).  

We agree with SBA that PTO's offering letter fell short of providing 
this required information.  As discussed above, the offered 
requirement included the requirements set forth in Digital's prior 
contract; the requirements set forth in Comint's prior contract; the 
requirements necessitated by the acquisition of additional equipment; 
and the requirements which had previously been performed by agency 
employees.  PTO clearly did not apprise SBA of this history, but 
simply stated that the offered requirement was a "follow-on" to 
Digital's section 8(a) contract.  This inaccuracy was repeated in both 
PTO's recommendation that a sole source contract be awarded to Digital 
as the "incumbent" on the "follow-on" contract, and in its statement 
that no other 8(a) firms were given the opportunity to review the 
requirement "since it was a follow-on."  In addition, there is no 
question but that PTO improperly failed to give SBA the name and 
address of Comint, which was undisputedly a small business contractor 
which had performed on this requirement during the previous 24 months.  

PTO states that it has "no specific comments" on SBA's conclusions, 
but blames its failure to provide the required information on a lack 
of communication between its two contracting offices.[3]  However, 
PTO's internal shortcomings do not mitigate this regulatory violation; 
as SBA points out, its regulations explicitly charge PTO with 
responsibility for providing SBA with "any" acquisition history of the 
offered requirement and the names and addresses of "any" small 
business that performed on the requirement during the period in 
question.  While the contracting officer states that he did not know 
Comint was providing support services similar to those being provided 
by Digital, he had the duty to ascertain and to fully and accurately 
disclose to SBA all of the specified information concerning the 
offered requirement.  Under the circumstances, we conclude that PTO's 
offering letter did not comply with the requirements of 13 C.F.R.  sec.  
124.308(c).  PTO's failure to provide SBA with the complete history of 
this acquisition was, at a minimum, misleading, and effectively 
deprived SBA of the opportunity to make a fully informed decision with 
respect to this section 8(a) acquisition.  See Korean Maintenance Co., 
supra.

The question remaining, then, is whether Comint was prejudiced by 
PTO's regulatory violation.  Prejudice is an essential element of a 
viable protest, and we will not sustain a protest where no reasonable 
possibility of prejudice is evident from the record.  Lithos 
Restoration, Ltd., 71 Comp. Gen. 367 (1992), 92-1 CPD  para.  379.  

With respect to prejudice, Comint contends that if SBA had known the 
actual acquisition history here, it would have had to determine 
whether its acceptance of the requirement would have an adverse impact 
on Comint pursuant to 13 C.F.R.  sec.  124.309(c).[4]  As relevant here, 
this provision states that:   
 
     "SBA will not accept for 8(a) award proposed procurements not 
     previously in the 8(a) program if . . . 

                    .     .     .     .     .

     "(c) Adverse impact.  SBA has made a written determination that 
     acceptance of the procurement for 8(a) award would have an 
     adverse impact on other small business programs or on an 
     individual small business, whether or not the affected small 
     business is in the 8(a) program.  The adverse impact concept is 
     designed to protect small business concerns which are performing 
     [g]overnment contracts awarded outside the 8(a) program."  

As an initial matter, PTO and Digital have argued that since Digital's 
contract was previously in the 8(a) program, 13 C.F.R.  sec.  124.309, 
which includes the adverse impact provisions, does not apply here.  
The parties are mistaken.  Although this regulation does not apply to 
requirements previously accepted for the 8(a) program where the 
requirements are currently being performed by 8(a) firms within the 
8(a) program, see Information Dynamics, Inc., B-239893; B-239894, Oct. 
1, 1990, 90-2 CPD  para.  262, that is not the case here; while Digital's 
portion of the requirements was currently being performed by an 8(a) 
firm within the 8(a) program, Comint's was not.  

SBA reports, however, that an adverse impact determination would not 
have been made as to Comint because the concept of adverse impact does 
not apply to "new" requirements that previously have not been procured 
by the contracting agency.  13 C.F.R.  sec.  124.309(c).  SBA treats a 
requirement as "new" where a contract that previously was awarded to a 
small business is materially expanded or modified so that the ensuing 
requirement is not substantially similar to the original one due to 
the magnitude of the expansion or alteration.  Id.; Support Management 
Servs., Inc., B-229583, Mar. 17, 1988, 88-1 CPD  para.  277, recon. denied, 
B-229583.2, June 9, 1988, 88-1 CPD  para.  547.  In such a case, there is no 
incumbent for the expanded or modified requirement, and, thus, no 
small business incumbent to protect.

According to SBA, Comint cannot reasonably be viewed as a non-8(a) 
small business incumbent on this consolidated requirement since that 
requirement is materially different from the previous contract it 
performed.  SBA states that the estimated $2.9 million consolidated 
acquisition here is substantially different, quantitatively and 
qualitatively, from the computer maintenance work that Comint 
performed under its prior contract.  Quantitatively, Comint's prior 
contract involved the maintenance of only 70 units of equipment at an 
annual price of $64,000, and the consolidated contract involves the 
maintenance of approximately 8,000 units of equipment at an annual 
price of $2.9 million.  Qualitatively, Comint's prior contract did not 
involve any software maintenance, and the consolidated contract 
contains a number of such requirements.

Comint does not challenge SBA's conclusions that the two contracts are 
materially different, or that it could not have been the incumbent 
contractor under the proposed procurement.  Rather, Comint argues that 
the purpose of the adverse impact determination--to protect small 
business concerns which are performing government contracts awarded 
outside the 8(a) program--would be "emasculated" if there were no 
adverse impact determination in cases where, as here, requirements are 
consolidated.  Comint's view notwithstanding, SBA's position is fully 
consistent with the applicable regulation.  Considering SBA's 
determinative role as to whether a requirement offered to the 8(a) 
program is "new," see Korean Maintenance Co., supra, we have no basis 
to object to SBA's interpretation.  The former requirement (that met 
by Comint's contract) clearly has been expanded, and the magnitude of 
the expansion on its face seems material.  See Grace Indus., Inc., 
B-274378, supra.  Under the circumstances, we have no basis to dispute 
SBA's view that an adverse impact determination would not have been 
made here.  13 C.F.R.  sec.  124.309(c).

Digital asserts that the sole purpose for providing SBA with the name 
and address of Comint--and, implicitly, the acquisition history--was 
to obtain any necessary adverse impact determination.  Since none was 
necessary, Digital argues that Comint was not prejudiced.  However, a 
contracting agency is required to provide SBA with complete and 
accurate information regarding offered requirements so that SBA can 
make various informed decisions about an 8(a) acquisition, only one of 
which is whether to render an adverse impact determination.  

PTO's offering letter required SBA to make several decisions, 
including whether to agree with PTO's recommendation that a sole 
source award be made to Digital.  If SBA had known of Comint's 
existence and the actual acquisition history, it might have asked 
Comint if it had any interest in this requirement--Comint asserts that 
it would have answered in the affirmative.  If this had occurred, SBA 
might have agreed to enter into the sole-source contract with Digital 
notwithstanding Comint's existence or interest.  13 C.F.R.  sec.  
124.308(e) (once a procurement is deemed suitable for acceptance as an 
8(a) sole source contract, it will normally be accepted on behalf of 
the participant recommended by the procuring agency).  However, SBA 
might also have agreed to enter into a sole source contract with 
Comint, or to have opted for a competitive acquisition.  Since Comint 
would be prejudiced under both of these reasonably possible scenarios, 
we sustain its protest on this basis.  

We also sustain Comint's protest that PTO's estimated award price of 
$2.9 million was unreasonable.  In this regard, section 8(a) contract 
opportunities shall be awarded on the basis of a competition if 
"[t]here is a reasonable expectation that at least two eligible 
program participants will submit offers and that award can be made at 
a fair market price";[5] and "[t]he anticipated award price of the 
contract, including options, will exceed . . . $3,000,000 for 
[contracts such as the one at issue here]."  13 C.F.R.  sec.  124.311(a).  

PTO's acquisition manager for the requirements initiative established 
the $2.9 million estimate in early 1996.  She explains that she 
arrived at then-current unit costs for each type of equipment to be 
maintained based upon figures from Digital's prior contract, 
historical data, telephone surveys of contractors performing this type 
of maintenance, price lists in General Services Administration 
schedules for the maintenance of similar equipment, and information 
about maintenance calls found in a PTO database.  She also established 
then-current quantities of each type of equipment possessed by PTO, 
broken down by different offices within the agency.

She placed these figures--quantities and unit costs--on a spreadsheet, 
multiplied the appropriate quantities by the appropriate unit costs, 
and arrived at a fiscal year 1996 total estimated cost of $2,802,585.  
The spreadsheet indicates that the agency intended to increase both 
the quantities and the unit costs to obtain a total cost for fiscal 
year 1997--the year during which most of the interim contract is 
scheduled to run.  Specifically, notes on the spreadsheet indicate 
that PTO planned to increase the quantities of equipment by 5 percent 
to account for growth and to increase the unit costs by 4.5 percent to 
account for inflation.  The spreadsheet shows a fiscal year 1997 total 
estimated cost of $2,955,388.

Both Comint's and our review of the spreadsheet showed that the agency 
had improperly calculated the estimated costs for fiscal year 1997.[6]  
Specifically, PTO had apparently failed to multiply the 1997 
quantities by the 1997 inflated unit costs.  Our calculations yielded 
a total estimated cost for fiscal year 1997 of $3,070,586, in excess 
of the $3 million competitive acquisition threshold.  PTO confirmed 
that it made this arithmetical error and conceded that our 
calculations were correct.

Our Office will not question an agency's estimated award price unless 
it is not reasonably based or there is a showing that agency officials 
engaged in fraud or bad faith.  Government Contracting Resources, 
B-243915, Aug. 15, 1991, 91-2 CPD  para.  153.  While Comint alleges that 
PTO arrived at its estimate to avoid a competitive acquisition, there 
is no evidence that this is the case, and we will not attribute unfair 
prejudicial motives to government officials on the basis of inference 
or supposition.  Grace Indus., Inc., B-261020, supra.  We conclude, 
however, based on the record before us, that the agency's estimated 
award price is not reasonably based.

PTO states that its estimate was made in good faith, and asks us to 
consider several factors in an apparent argument that its estimate 
would have been below $3 million notwithstanding its arithmetical 
error.  We consider and reject each.

First, PTO's argument that its estimate was for the "worst-case 
scenario" that the interim contract would run for a full year, when it 
will not,[7] overlooks the fact that the estimate must include the 
entire contract period, including options.  13 C.F.R.  sec.  
124.311(a)(2)(i).  Hence, the fact that this contract will not run its 
entire period is  irrelevant here.  Second, PTO appears to argue that 
the correct estimate lies somewhere between the spreadsheet's estimate 
for fiscal year 1996 and the corrected estimate for fiscal year 1997, 
since the contract was awarded in the last quarter of fiscal year 
1996.  While this may be true, PTO has proffered neither a "correct 
estimate" nor any statement that such an estimate would be below the 
competitive acquisition threshold.  Moreover, the actual number of 
units projected to be in PTO's inventory in fiscal year 1997 has been 
put into question by PTO's statements which suggest that they are 
significantly understated.  Third, PTO's apparent assertion that a 
"reasonable range" in its estimate should be sufficient here is 
unsupported by any such language in the regulation, which sets forth a 
specific threshold figure.  13 C.F.R.  sec.  124.311(a)(2).  The related 
claim that the definitized contract price of $2.8 million supports the 
agency's estimate misses the point.  While the regulations provide for 
minor miscalculations in such estimates during contract formation, 13 
C.F.R.  sec.  124.311(a)(2)(ii), in such cases, the critical decision 
whether to proceed with a sole source or a competitive acquisition has 
already been made.  In contrast, a minor miscalculation in an offering 
letter, which is the basis for that critical decision, may mean the 
difference between a sole source and a competitive acquisition.  Such 
was the case here. 

PTO correctly states that its stated methodology, described above, has 
not been disputed.  The problem here is that PTO did not properly 
apply its stated methodology.  The agency clearly intended to arrive 
at a total estimate for fiscal year 1997 by applying a specified 
growth rate and a specified inflation rate, but inexplicably failed to 
properly apply them.  Its failure to do so was unreasonable.  See 
Government Contracting Resources, supra; Logics, Inc., B-237412, Feb. 
13, 1990, 90-1 CPD  para.  189.  Since the regulations require a competitive 
acquisition where the anticipated award price exceeds $3 million; the 
agency's anticipated award price, if properly calculated, exceeds $3 
million; and Comint states that it would have competed under such an 
acquisition, the firm was prejudiced by the agency's unreasonable 
calculation of its estimate.

Since the interim contract at issue here will soon be replaced by a 
multi-year contract for these services, it is not practical to 
recommend that PTO resubmit these requirements, along with a complete 
acquisition history and estimated award price, for SBA's 
consideration.  We recommend that Comint be reimbursed the costs of 
filing and pursuing its protest, including reasonable attorneys' fees.  
Bid Protest Regulations, section 21.8(d)(1), 61 Fed. Reg. 39039, 39046 
(1996) (to be codified at 4 C.F.R.  sec.  21.8(d)(1).  Comint's certified 
claim for such costs, detailing the time and costs incurred, should be 
submitted within 60 days after receipt of this decision.  Section 
21.8(f)(1), 61 Fed. Reg. 39046 (to be codified at 4 C.F.R. 
 sec.  21.8(f)(1).

The protests are sustained.

Comptroller General
of the United States

f:\projects\pl\274853.wp5

1. Comint had performed this contract as a subcontractor to a large 
corporation until December 1995, when the prime contractor assigned 
the contract to PTO.

2. As discussed further below, SBA may accept an acquisition such as 
this one as a sole source requirement where, among other things, the 
anticipated award price is below $3 million.  13 C.F.R.  sec.  124.311(a) 
(1996).

3. While Comint alleges that bad faith was the "only motive" for the 
incomplete information that PTO provided to SBA, there is no evidence 
that this is the case.  Government officials are presumed to act in 
good faith; we will not attribute unfair prejudicial motives to such 
officials on the basis of inference or supposition.  Grace Indus., 
Inc., B-261020, July 10, 1995, 95-2 CPD  para.  9.  

4. As for Comint's argument that PTO was required to give SBA the 
names of all of its hardware maintenance contractors in connection 
with this acquisition, the requirements of 13 C.F.R.  sec.  124.308(c) are 
specific to small business concerns which have performed the "offered 
requirement," not all such requirements.  

5. Given the obvious interest of both Digital and Comint in this 
acquisition, we have no basis to conclude that this condition would 
not have been met. 

6. We have reviewed Comint's remaining challenges to the 
reasonableness of the agency's estimate and find them to be without 
merit.  In particular, Comint's allegations concerning the 
discrepancies between Digital's prior contract and this one overlook 
the agency's methodology, which incorporated factors other than 
Digital's prior contract to arrive at its estimate.  

7. PTO advises that an award of the multi-year contract for these 
services is imminent, and that the interim contract at issue will be 
terminated at that time.